Will Lowes Ever Beat Home Depot?

Summary

I just covered Home Depot earnings and now Lowe's has reported.

Lowe's has long played second fiddle to Home Depot, but that doesn't mean its not a strong company.

I discuss Q1 metrics and the outlook.

Just yesterday I covered the Home Depot (NYSE:HD) and its interesting quarter. This morning as I drink my coffee catching up on news, I see that Lowe's (NYSE:LOW) has just reported its results. Always coming in behind Home Depot. I kid, but of course the Home Depot is my home improvement store of choice and it delivered solid earnings. As I discussed in the Home Depot piece, after looking into the key metrics I concluded you could stay and it remained a blue chip I wanted to own, particularly with a pullback. Now make no mistake, Lowe's is Home Depot's number one competitor. It has also just reported an interesting Q1. Although being outcompeted by Home Depot, Lowe's has stuck in there. In the past few quarters Lowe's has been having difficulty meeting the bottom line estimates, although last quarter (Q4 was strong). So where are we now?

I will get right to the point. The company delivered a top line and bottom line beat. This is the first such occurrence since I have been covering the company, and it beat estimates handily. Revenue for the fourth quarter increased 7.8 % year-over-year to $15.2 billion from $14.1 billion in the first quarter of 2015. I also think it is key to point out that comparable sales increased a whopping 7.3%. It is safe to say, based on these two metrics, that Lowe's is holding its own. These revenues beat the consensus by $360 million. I want to add that looking solely at the home improvement segment, comps were up 7.5%.

Of course what about on the bottom line? This matters too. This is where the company has struggled. This quarter net earnings came in at $884 million. This is a large year-over-year increase of 31.4%. Diluted earnings per share came in 40% higher year-over-year to $0.98. The first quarter results however also included an unrealized gain on a foreign currency hedge entered into in advance of the RONA acquisition, which increased pre-tax earnings for the first quarter by $160 million and diluted earnings per share by $0.11. As such, adjusted earnings came in at $0.87. This was a beat of $0.02. The company Much like Home Depot the company has been buying back stock. Given the company's history of earnings, this is a big win.

This is the second strong quarter in a row and the stock, in my opinion, is a good deal on pullbacks, given the growth trajectory. As far as the performance is concerned, Robert A. Niblock, Chairman and Chief Executive Officer and President of Lowe's stated:

"We executed well in the quarter, growing both transaction and average ticket to achieve comparable sales growth that exceeded our expectations. We continued to focus on providing better omni-channel customer experiences, and saw strength in indoor as well as outdoor categories. Our team's project expertise and commitment to customer service allowed us to capitalize on strong home improvement demand during the quarter, and I would like to thank them for their efforts."

The bottom line here is that homeownership and improvement isn't going anywhere. The economy, even if it has limped along, is arguably better than it has been since right before the Great Recession. For Lowe's, growth was there and was quite significant. It surpassed expectations on the top and bottom lines, the second quarter in a row of real strength. The company continues to be very shareholder friendly. During the quarter the company repurchased $1.2 billion of stock under its share repurchase program and paid $255 million in dividends in the quarter. I expect a dividend another hike this year. Looking ahead, sales are expected to increase 6% with comparable sales rising at least 4% in 2016, and should add another 50 stores. The growth continues. It is a buy, but wait for a better price. It may be second to Home Depot, but stands alone as a strong company, and investment, in its own right.

Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles, which are time sensitive, actionable investing ideas. If you would like to be among the first to be updated, be sure to check the boxfor "Real-time alerts on this author"under "Follow."

Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.